Wednesday, September 17, 2008

Stepping up to the trough

I'm sure that while you pay close to $4 a gallon for gasoline and struggle to pay your mortgage and other obligations, you won't mind that the government is using your tax dollars to finance an $85 billion loan to bail out one of the world's largest insurance companies, American International Group Inc. This comes on the heels of the government's move to take control of mortgage giants Fannie Mae and Freddie Mac, which could cost as much as $200 billion. That's right. The government can't find the money to repair or replace the nation's crumbling roads, bridges and water systems, but if multibillion-dollar financial institutions get their tits in a wringer, Uncle Sam is quick to write a check, using our money. It's expected that the feds, who will now have a controlling interest in AIG, will remove the company's chief executive, Robert Willumstad, who has been in the post only since June. But shed no tears for Mrs. Willumstad. His deal with AIG called for a $1 million base salary and a minimum annual bonus of $4 million. He can take a little time to consider his future work options. I also read in recent weeks that American automakers, which just a few years ago were raking in billions in profits while fighting tooth and nail against higher fuel-efficiency standards, are now coming to Congress to seek as much as $50 billion in low-interest loans to help them modernize their plants and develop more fuel-efficient vehicles. It's mind-boggling. But a couple of prominent politicians have said recently that there's no need to worry because the nation's economy is fundamentally strong. I'm no more of an economist than they are, but when a financial sector meltdown costs us hundreds of billions of tax dollars, when the retail sector is contracting and when unemployment is above 6 percent, I'm going to have to say they're wrong.



Anonymous Anonymous said...

If the econonmy is so bloody bad, where the freakin' hell is this bailout money coming from? And Bush tried to eliminate bankruptcy for plain folks.

September 17, 2008 at 2:49 PM  
Blogger Brant said...

They just print more money, and the national debt continues to soar. The budget surpluses of the Clinton years are way in the rear-view mirror.

September 17, 2008 at 3:05 PM  
Anonymous Anonymous said...

As Paul Krugman of the NY Times has pointed out, profits are privatized, but the risks are socialized.

We need to keep this in mind the next time some corporate CEO or Mitt Romney-style politician lectures us how the government needs to stay out of the way and let the market work its magic.

--Brad Hundt

September 17, 2008 at 3:12 PM  
Blogger Ellipses said...

That time would be NOW... if you watched Palin's interview with charlie gibson, she said almost EXACTLY what you said... I am a free market guy... but it has to work both ways for me to embrace it. If you are going to socialize the risk, there is no incentive for sound business practices to prevail.


September 17, 2008 at 4:32 PM  
Blogger PRIguy said...

Willumstead should be forced to relinquish all of his assets in an effort to help pay for the bailout.

September 17, 2008 at 5:33 PM  
Blogger Ellipses said...

I think what is particularly troubling about these problems is that it is affecting the financial sector DURING a slow-growth period. In the 80's, we were in the midst of what was essentially a two decade bull market (with a time out for a few months in the early 90's)... There were problems in the banking industry, but enough external capital was being generated through other, more robust sectors. Today, however, a lot of sectors are struggling to maintain their bottom lines, and as wealth evaporates out of Merril and AIG and Lehman... it isn't just shareholder value that is leaving... its capital that can be leveraged by other sectors to generate profits. Let's say my widget factory is flatlining... I could upgrade some equipment or develop a new product line to either increase efficiency or create a new revenue source... but with a "credit crisis" I can't get the expansion loan... Had this happened in 04 or 05, there would have been a 3 year cushion for the banks to restructure without really crimping economic growth... This is almost a worst case scenario on timing, though...

However, as with all economic cycles, this should smooth out within a decade (sounds scary, huh?!)... I would predict that the 2015 bull market will be focused on the "amazing" wealth created in the financial sector... Bank of America could be the Google (GOOG) of the 2010's...

But to make it to then, you should follow my lead... place the tip of each index finger into your ear canals and repeat after me... "La la la la, I'm not listening!"

Ride it out... and stock up on the Ramen.


September 17, 2008 at 7:30 PM  
Blogger Ellipses said...

Check that... looking at the fundamentals on BOA, I would say they would be more like today's exxon than today's Google... still, money to be made down the road.


September 17, 2008 at 7:34 PM  
Anonymous Anonymous said...

I'd tell AIG... if you give a dollar for executive's raises (actually millions), the government will no longer give you any taxpayer money! If they have a problem with that...then go Bankrupt! Then they won't get anything!

March 15, 2009 at 8:23 PM  

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